Nakheel, the property developer at the centre of Dubai World's debt problems, will receive US$8 billion (Dh29.38bn) under a proposed restructuring in a move that could help restart developments across the emirate. Companies working on the Palm Jebel Ali, Waterfront and other Nakheel projects have been limbo as they tried to negotiate with the developer. But yesterday's plan spelled out a clear road map for getting paid.
Each of its trade creditors would receive a cash payment of up to Dh500,000 soon after an agreement was made, with the remainder settled later, according to the plan. With half of the contractors owed up to Dh500,000 this would mean they would have their balances settled in full. For contractors with larger debts, Nakheel would make a 40 per cent cash payment and hand over a "tradable security" that could be held for full repayment over a longer period or sold on the market to investors. The security could be a bond or a similar instrument, said a spokesman for the Dubai Financial Support Fund (DFSF). The DFSF is an independent legal entity established with the specific purpose of providing financial support and liquidity to government and government-related entities
About half of Nakheel's $22bn of liabilities, according to research from UBS, is working capital or trade creditors-related. This means the immediate cash payout to contractors could be about $4bn, which would be a much-needed boost for the sector, said Saud Masud, the head of Middle East research at UBS. "For contractors, cash is everything," Mr Masud said. "You need cash to keep everything running, to feed workers, keep the cranes going - I think they made out relatively OK for the first move."
However, contractors would still not necessarily get paid at par because the "agreed" price could be lower than the original agreement, he said. The announcement is likely to help some stalled projects get back on track. Arabtec, the country's largest construction company, expected to resume work in a "matter of a few weeks" on Al Furjan, a planned 4,000-home development near Ibn Battuta Mall and Discovery Gardens, said Riad Kamal, the chairman of the company. Arabtec stopped work on the project in January after Nakheel had failed to pay bills for more than a year.
It won a Dh2.99bn contract for the first 1,500 homes in June 2008, and has completed 550. "This is an extremely good solution for creditors and I'm extremely happy with what's on the table and creditors should support that," Mr Kamal said. "This will revive confidence among local and foreign investors and with time the real estate market will become healthier." The UK engineering firm Halcrow also welcomed the announcement.
"This sounds like a step in the right direction," said David Yaw, the regional managing director of Halcrow. "We welcome any move that helps to restore confidence in the Dubai marketplace." Halcrow is owed money for a group of medium-sized projects, including a district cooling plant on Palm Jumeirah. "Our exposure is enough to hurt but it's modest compared to our overall exposure in the region," he said.
Jonathan Davidson, a partner at Davidson and Co Legal Consultants, said most trade creditors would consider the proposal a deal worth taking. "This has been in the mix and debated for so long that people have managed and re-managed their expectations downwards over the last 18 months," he said. "Nakheel has had no direction for a long time. Now that this announcement has been made, they begin to mobilise and make decisions."
The proposal would instill new confidence among property investors in Nakheel projects, Mr Davidson said. In its announcement, Nakheel said publicly for the first time that it would allow buyers to trade their units in stalled projects into projects further along at market prices. This could mean that someone who paid 20 per cent for an apartment in the Waterfront at peak prices could transfer his payment to another building at the current depressed prices so that the total amount paid equals 50 per cent or higher.
There could still be future disputes between Nakheel and creditors in cases where the two sides cannot agree on a final amount that is owed, lawyers said. "This is where the difficult part may be, though the creditors will have a strong incentive to agree to lower their claim values," said Michael Grose, a partner of the projects and construction group at Clyde and Co in Dubai. "Many have already done so, of course, and they should now be safe from the 'second haircut' scenario."
One venue for such disputes is the Dubai World special tribunal, which was set up in December to handle claims against the conglomerate. To date, there have been no claims made in the tribunal, officials said. @Email:bhope@thenational.ae tarnold@thenational.ae